Title deeds saga likely to be kicked down the road

Tens of thousands of home buyers are still without title deeds for houses they paid for

LAST MONTH parliament passed a bill, indefinitely banning repossession of houses whose owners have no title deeds, even though they may have paid for them in full, as the building developers had already taken out loans on those properties which they cannot repay.

Developers’ land and buildings are counted as assets that need to be offset against their debt to banks, which gives lenders a claim on people’s properties that had been mortgaged by developers.

Tens of thousands have been left without title deeds as a result.

A clause in the main foreclosures law exempts this category of properties from repossession until April 30. According to the provision, such properties will be exempted provided the buyers paid at least 80 per cent of the sale price or have fully complied with their contractual obligations towards the seller.

In March MPs amended the duration of the exemption, making it indefinite. The President refused to sign the bill into law and sent it back to parliament, arguing that it was unconstitutional and created ‘a general and permanent shield’, not for vulnerable groups, but a number of sellers and land developers.

But as property advisor Nigel Howarth earlier told the Mail, the amendment passed by the parties simply prohibits foreclosures, without addressing the key problem for the thousands of home owners trapped without title deeds.

He explained that even if a title deed were issued, it would still be in the name of the developer, not the buyer. And since the developer with an outstanding debt cannot transfer the deed, this means that whereas the property would not be repossessed, owners might end up paying the developer’s debt just so they could get the deed for a property they had already paid for.

“Developers are being lumped together with buyers. A way around this muddle might be a new amendment, somehow separating the developers’ liabilities from the buyers, but it won’t be easy,” Howarth said.

That’s because many developers tended to take home buyers’ cash, and rather than using the money to pay off their own loans on that specific property or land, they financed other developments, which likewise came into the red, spreading the malaise.

After the President’s refusal to sign the bill, interior minister Socrates Hasikos said the government was preparing new legislation to comprehensively deal with the issue.

Under the current system, where an apartment block has 10 flats, of which nine have been sold and paid for, the block as a whole is still held in mortgage due to the developer’s debt, and title deeds cannot be issued to any of the buyers.

But, Hasikos said by way of example, with the new law being drafted by the government, if a developer’s outstanding loan is €100,000 and the value of the flat that has not been fully paid for covers the developer’s mortgage, then the other nine flats are released from the encumbrance and title deeds issued to their buyers.

But this too is no fix, says Howarth. First, the value of the remaining flat in the block may be insufficient to cover the mortgage on that development.

A way around it might be for banks to transfer that mortgage onto another building project of the same developer. However this wouldn’t work either if the apartments in the other project are unsold, said Howarth, since the banks would have no guaranteed revenue stream.

The property expert stressed also that an indefinite ban on repossessing this category of properties helps no one, including the banks.

What’s more, it’s doubtful whether Cyprus’ international creditors will release the next bailout tranche as long as banks here are prevented from recovering loans gone bad.

Under the terms of its bailout, Cyprus has set up a task force “on registered, but untitled, land sales contracts” that must prepare a study by the end of May.

This should have been done by October last year. [Editor’s comment: An earlier MoU called for this study to be completed by the end of June last year].

To get MPs to withdraw the indefinite repossessions ban on these properties, the interior minister has asked them to extend the exemption to June 30 instead.

This Friday, the House plenary votes on the President’s referral of the bill. Should the House reject the President’s referral; the matter will be settled by the Supreme Court.

So far, the ruling DISY party is alone in seeking to have indefinite ban withdrawn. For the President’s referral to be upheld, they will need the votes of DIKO and the European Party. The latter has stated it will back the President, but only if it receives satisfactory assurances from the government that the matter will be regulated.

DIKO’s stance is still touch-and-go. MP Angelos Votsis told the Mail yesterday that they may decide to re-table a previous amendment of theirs, which sought to extend until the end of the year the repossession freeze on homes without title deeds.

DISY may go along with that or a similar proposal, to prevent the matter from being decided at the Supreme Court, where the President could lose, in which case the indefinite ban would take effect.

A great deal of horse-trading is expected ahead of the House plenary, which will also be voting on the insolvency framework, again linked to property foreclosures.